New Pipelines to Boost Kashagan Project Costs

Kashagan, the world's most expensive oil project, will have to spend another up to $3.6 billion to replace leaking oil and gas pipelines, which also could delay the restart of production, the Kazakh energy ministry said.

Production at the Kashagan reservoir, the world's biggest oil find in recent times, started in September last year but was halted just a few weeks later after the discovery of gas leaks in the $50 billion project's pipeline network.

Replacing the pipelines at the oilfield, which lies in the Caspian Sea off western Kazakhstan, will cost between $1.6 billion and $3.6 billion, the Kazakh Energy Ministry said in a document obtained by Reuters on Friday.

The multinational consortium developing Kashagan has identified stress cracking due to sulphur-laden gases as "the root cause of the pipeline issues" at the oilfield.

The final cost of the replacement will depend mainly on the resistance to corrosion of the pipes used in laying the new pipelines, the energy ministry said in the document sent to the Kazakh parliament.

The field's oil is 4,200 metres (4,590 yards) below the seabed at very high pressure, and associated gas reaching the surface is mixed with some of the highest concentrations of toxic, metal-eating hydrogen sulphide (H2S) ever encountered.

"Taking into account the high risks of repeated leaks by choosing pipe material of specification L360 (X52) as envisaged by the basic scenario, there is high probability the contractor will opt for an alternative scenario of using pipes covered with non-corrosive alloys," it said.

The more expensive alternative is to use carbon-steel pipes of strength L415 (X60) with an internal coating made of non-corrosive alloys, it said.

Contacted by Reuters, the consortium declined to comment.

The Kashagan consortium will have to buy pipes adding up to a total length of 200 km (125 miles) to replace the entire network of the field's oil and gas pipelines, the ministry added.

A current delay in testing steel and welding is likely to frustrate the consortium's plans to restart output at the field in the second half of 2016, it said.

Senior Kazakh government officials have said that output from Kashagan may be restored in the first or second half of 2016.

The consortium is in talks with Italian oil service group Saipem regarding the replacement of oil and gas pipelines at the oilfield, the ministry said.

Saipem had originally been contracted to lay the current pipeline network at Kashagan, using pipes supplied by Japanese companies Sumitomo (SSUMF) and JFE.

The Kazakh energy ministry did not identify who would supply the pipes for the new pipelines.

The Kashagan consortium includes Eni, Exxon Mobil (XOM) , Royal Dutch Shell (RYDAF), Total, China's CNPC, Japan's Inpex and Kazakh state-run company KazMunaiGas.

By Raushan Nurshayeva